Towards the end of its term, the Trump Administration continues to strengthen regulation of trade with China, even when it means leaving implementation of the new controls to the Biden Administration.
For companies doing business in and with China, the increased export controls and economic sanctions – a recent executive order prohibiting transactions with popular Chinese mobile payment apps, a new 'Military End Use' list that tightens export licensing for designated items, and a ban on securities investments in Chinese military entities – call for enhanced due diligence to ensure compliance.
Ban on Transactions Using Chinese Mobile Payment Apps
On January 5, President Trump signed an Executive Order that prohibits any transactions with persons that develop or control eight Chinese applications, including Ant Group's Alipay and Tencent's WeChat Pay (the "Mobile Payment EO").
According to the Mobile Payment EO, the restricted apps – Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office – provide the Chinese government and the Chinese Communist Party with the ability to access and capture sensitive personally identifiable user information of Americans. The Mobile Payment EO does not, however, cite any specific instance of the apps being used to harvest the private data of U.S. citizens.
It's not clear, however, whether the Mobile Payment EO, which is scheduled to take effect on February 19, 2021 – nearly one month after the Trump Administration leaves office – will be implemented at all: the incoming Biden Administration could delay the ban or revoke it entirely. What's more, should the EO be implemented, it is likely to be challenged in court.
In addition, because the Mobile Payment EO requires the Secretary of Commerce to work with the Attorney General and the Director of National Intelligence to "identify the transactions and persons that develop or control" the restricted apps, the transition to the Biden Administration could further impact implementation of the executive order. It is worth noting, however, that the current Secretary of Commerce, Wilbur Ross, has issued a statement to indicate that his Department has begun implementing the Mobile Payment EO's directives.
If implemented, the ban could significantly hamper the ability to use the apps to do business in China or with Chinese entities. Pending implementation of the Mobile Payment EO on February 19, people and business that use the restricted apps to conduct business with Chinese entities should explore alternative ways of making payments.
China has already begun to retaliate against the U.S., announcing new rules that ban Chinese companies and individuals from complying with "unjustified" foreign laws and sanctions and allow Chinese entities to sue foreign companies in Chinese courts for compliance with these "unjustified" laws. For more on this, China Issues New Rules to Combat the Long-Arm Jurisdiction of Foreign Laws, written by our Chinese-allied law firm Chance Bridge Partners, a fellow member of Alliott Group Alliance.
Commerce's BIS Releases MEU List Identifying 58 Chinese Entities Now Subject to Export Licensing Requirements
On December 23, 2020, the U.S. Department of Commerce's Bureau of Industry and Security ("BIS") published a new Military End User List ("MEU List") under the Export Administration Regulations ("EAR") identifying 58 China entities that, according to BIS, provide U.S. technology to the Chinese military.
The MEU List provides clear guidance to U.S. companies that a license will be required to export, reexport, and transfer (in-country) designated items to the entities on the list.
BIS notes, however, that the MEU List is non-exhaustive, and that companies not on the list may nevertheless be subject to regulatory prohibitions. Accordingly, exporters, reexporters, and transferors of designated items should conduct thorough due diligence before engaging in transactions with Chinese entities not currently identified.
OFAC Clarifies U.S. Ban on Investments in Chinese Military Companies
In early November, 2020, President Trump issued Executive Order 13959 banning U.S. investment in securities issued by Chinese military companies (the "E.O. 13959"). More recently, the U.S. Department of Treasury's Office of Foreign Assets Control ("OFAC") has released a series of FAQs to clarify the Chinese Military EO. Of note:
- "The prohibition ... takes effect at 9:30 a.m. eastern time on January 11, 2021. Compliance with this prohibition is measured by trade date, rather than settlement date."
- E.O. 13959 "does not require U.S. persons, including U.S. funds and related market intermediaries and participants, to divest their holdings in publicly traded securities ... by January 11, 2021. ... Divestment must be completed by November 11, 2021."
- "OFAC has published and will continue to update a list on its website to aid in the implementation of E.O. 13959, including the names of certain entities that closely match the name of entities identified in the Annex to E.O. 13959."
- "OFAC's current list includes (1) China Telecommunications Corp. / China Telecommunications; (2) China Mobile Communications Group / China Mobile Communications / China Mobile Communications Group Co Ltd; and (3) China United Network Communications Group Co Ltd / China United Network Communications Ltd. ... Transactions in the securities of any Communist Chinese military company subsidiary (whether expressly listed or not) are prohibited if the subsidiary's name exactly or closely matches the name of these or any other entities identified in the Annex to E.O. 13959 or the name of any Communist Chinese military company listed by the Departments of the Treasury or Defense."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.